The present application relates to methods of securitizing and/or monetizing assets to obtain benefits associated with the transaction. In particular, the present application relates to methods of creating a patent investment entity to facilitate the securitizing and/or monetizing of intellectual property (IP) to obtain benefits associated with the securitizing and/or monetizing.
A securitization includes an assignable agreement having one or more specified future payments backed by rights sufficient to assure the parties purchasing the security that the payments will be made or title to property of similar value can be obtained. For example, in the case of a mortgage, the property interest is title to real estate. In the case of a sale/lease back, the property interest is the right of eviction. In the case of the securitization of intellectual property (IP) assets, discussed in more detail below, the property interest obtained in the event that the future payments are not made is the right to exclude others from the use of the subject matter of the IP. In each case, the party providing the capital has the ability to acquire a property interest that can be resold to others to provide a return on their original capital investment in the event that the specified future payments are not made according to the agreement.
Monetization may include the conversion of an asset or group of assets into some form of compensation, such as a lump sum payment, a stream of payments, etc. For example, licensing intellectual property in exchange for a stream of licensing payments monetizes the patent.
In the practice of accounting, it is well established that IP is “intangible property” that has no intrinsic value per se, but is merely representative of the value of the discovery. As an incentive for R&D expenditures, R&D costs are fully deductible as an expense in the year the costs are incurred. Therefore, when R&D expenditures result in IP such as a patent, the “book value” of the patent is zero even though the value to the business may be large. However, during an acquisition of an entity that owns IP assets, it may be required that the IP asset receive a book value that is equivalent to the fair market value of the IP assets. Further, wherein the intellectual property is sold to another entity, the value received for that sale is recognized.
Some intellectual properties created as a consequence of R&D possess desirable characteristics that lend themselves to securitization and/or monetization. Patents are one such intellectual property. Patents entitle the owner to exclude others from practicing the invention covered by the patent. Another type of intellectual property is information described in writings and knowledge arising within a business which is: (a) not generally known by others; (b) is retained in secret, and (c) is disclosed to others only under covenants to retain such disclosed intellectual properties secret between and among the parties bound by such covenants (hereinafter referred to as “trade secrets” or “know how”). Copyrights are another form of IP that may be securitized. Copyrights provide an author the right to control reproduction of his intellectual creation, such as literary works, musical works, dramatic works, pictorial works, motion pictures, sound recordings and architectural works.
A characteristic of intellectual property assets is the right to license, lease, or otherwise convey rights to use or otherwise practice the useful art, in whole or in part, embodied in such intellectual properties (hereinafter referred to as “licensing”). The granting of these rights to a third party is usually made in return for some type of compensation. A further characteristic of intellectual property assets is the right to identify potential infringers of the intellectual property asset and to request or sue for payment of a reasonable rate based on the infringing use.
What is needed is an entity configured to allow a corporation to obtain favorable benefits based on the sale of an intellectual property asset to a patent investment entity and subsequent leasing of the intellectual property asset from the patent investment entity. What is further needed is a patent investment entity configured to generate income based upon residual rights obtained in the acquisition and leasing of intellectual property assets.